MGIC Investment Up on May Operating Statistics

Shares of MGIC Investment Corporation (MTG) gained 1.6% to close at $9.28 on Jun 10, after the company reported robust monthly operating statistics for May 2014. The results reflected a decline in delinquency level and an improvement in new business written.

Primary new insurance written for May was $2.8 billion, flat year over year but up 21.8% sequentially.

MGIC Investment witnessed a consistent improvement in delinquency levels. Delinquent inventory for May 2014 was 86,415, down 27.4% year over year and 1.8% sequentially.

MGIC – a niche player in the mortgage insurance market – is gaining from improving market conditions, especially a rebound in the housing market. In 2013, primary new insurance written at MGIC Investment was worth $29.8 billion, up 24% year over year and double the figure reported in 2011. The increase was attributable to larger origination volume and improvement in private mortgage insurance industry’s market share.

According to Inside Mortgage Finance, till 2010, MGIC Investment was the largest private mortgage insurer (in terms of new insurance written) for more than a decade. In 2013, the company had the third-largest market share (in terms of new insurance written).

Management at MGIC Investment is encouraged with the growing demand for home purchases. Moreover, as the majority of purchases involving mortgage do not have a 20% down payment, the company expects to benefit from this opportunity.

After suffering losses for the past six years due to the subprime crisis, the industry is now on its path to recovery. The current market structure presents a good opportunity for stronger players with a stable capital position and tolerance for regulations. Moreover, due to the exit of some firms during the housing market crisis, supply is limited. Mortgage insurers with a differentiated financial profile can therefore benefit from the current market conditions.

MGIC Investment currently carries a Zacks Rank #2 (Buy).

Another player that is well poised to gain from the changing trends in the mortgage industry is Old Republic International Corp. (ORI) with a Zacks Rank #1 (Strong Buy). A new entrant – Arch Capital Group Ltd. (ACGL) – with a Zacks Rank #2 (Buy) – is also worth considering. The company ventured into the mortgage insurance market with the CMG Mortgage Insurance Company acquisition

Another Zacks Rank #1 stock, Radian Group Inc. (RDN) is also a good investment option.